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Wednesday, 11 January 2006 00:00
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Book Review
DOUBLE-DIGIT GROWTH
 
Michael Treacy
Penguin Portfolio
Price: Rs 395; Pages: 224



At first brush, it would appear this book isn’t strictly relevant to India since around 1,130 companies in the country have achieved a consistent a double-digit growth rate in sales over the past five years and around 540 have managed a 20 per cent sales growth rate consistently year on year for the past five years—the raison d’etre for the book is that very few firms in developed markets seem to be achieving a double-digit growth rate consistently and this includes highfliers like AT&T, Procter & Gamble, and IBM.
 
Yet, look at the list so helpfully provided by our research team atBusiness Standard and you find that even Maruti Udyog and Bajaj Auto are just about making the cut. Maruti had a 9 per cent compound annual sales growth rate over five years though profits rose 20 per cent. Bajaj Auto managed better on sales with 13 per cent but its profit growth was under 5 per cent. Others like ACC, BHEL, Indian Oil and a lot more fared equally miserably. While there may be similarities to explain this poor performance—both Maruti and Bajaj Auto are auto firms—how do you explain Gujarat Ambuja’s 20 per cent sales growth and 25 per cent profit growth?
 
So, what is it that makes companies achieve double-digit growth consistently? Not being a management student, I can’t give you the precise sequence of various theories that have done the rounds, but this book advocates diversification as opposed to the old stick-to-your-knitting theory—to that extent, it looks like just another book reflecting the mantra of the year. It does, however, qualify this, and explains with examples of what kind of diversification is to be sought (“adjacent market penetration”, for example, is close to the core).
 
The lessons to take home, to my mind, are the five or six questions the author asks each board to ask its management team—helpfully, these are early on in the book. These include the cost of consumer churn in a business and how much the business would have grown if the company’s churn rate was the same as that of the industry; the relative costs of growing organically or through acquisition; and so on. A very insightful example is given to show just how important churn is—that of wireless firm Sprint. In 2002, the firm increased its customer base by 1.1 million and spent about $2.5 billion on sales, marketing and equipment subsidies. That is, the company spent about $2,200 for each customer it gained as compared to each customer’s annual billing of $744. The problem was compounded by the fact that Sprint lost 42 per cent of its consumer base in that year and so, to achieve the 8 per cent additionality it got, it had to get 50 per cent more subscribers. Rival Nextel also gained 50 per cent more subscribers, but since it lost only 27 per cent of the existing base, got a much greater punch to the bottom line.
 
Okay, you’re tempted to give up right here, having figured out the trick to double-digit growth is Customer Relationship Management (CRM), that complex and often expensive tool to track what customers do and, presuming that’s also what they want, come up with all manner of loyalty programmes to ensure they stay loyal. This is where Treacy scores. He gives examples of companies that have given up CRM programmes after finding them too expensive and unreliable.
 
Treacy’s solutions include solid marketing hype to convince customers your product is unique even if it isn’t by focusing on one or two of its attributes, increasing the costs of switching by offering major concessions, for instance, to customers planning to leave you, by avoiding comparison by not being available in places the competition is (Treacy claims Bose Corporation avoids Best Buy and other retail points that have comparison shelves with a wide assortment of brands), by making your services sticky (don’t offer just PCs to an office, look after the printers, photocopiers, conference equipment and all the rest), and so on.
 
There are chapters on issues such as taking business away from your competition and how to show up in areas where growth is about to happen, but for those, you have to buy the book.

 

 

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